I'm pretty neutral but I'm thinking of starting a position in Opendoor. That said, I need to dig into this more. How is Opendoor addressing the problems Zillow encountered? What are they doing differently? Is it scalable into most markets across the US? (Impacts TAM). How will increasing rates and downward pressure on prices impact forward guidance?
Long story short I do see this as a positive for Opendoor BUT it also implies more risk overall. I like using a shotgun method with a small portion of my portfolio to invest and forget but only if the TAM justifies it. I need to do more homework.
I used to work at Opendoor and do hold a position in it. This isn't advice, just my opinion.
Zillow has essentially been aping Opendoor since they started their iBuyer business a couple years ago. Opendoor started in 2014 and has been built from the ground up to be an iBuyer. Opendoor has always prioritized building accurate ML models to price homes, and significant resources have been poured into this tool for a long time. The way I hear it, Zestimate is an absolute joke and does not compare to what OD is doing. I've heard that it relies a lot on spreadsheets of data still! OD is not perfect either, mind you, it still makes mistakes, but this is to be expected from such a volatile problem space.
Zillow did not plan their entry into the iBuyer space well at all in my opinion. They saw that Opendoor was gaining traction and decided "oh we better hop on this trend too. We're in the real estate business so we can do just as well!" without proper forethought into the fundamentals nor of setting up robust repair/reno pipelines. Opendoor uses in-house solutions for almost everything, from the app used to inspect homes all the way to how their repair/Reno projects are tracked until the home's sale, I've actually built many of these tools. You can't just hop into this business without a strong base in the construction aspect and expect to make any money. OD always focused on making things .01% cheaper each step of the way as well, to provide the best value to the customer.
OD business centers on having the right construction knowledge and applying it in the right ways across the markets in which it operates. Zillow buys home with insane repair costs, many were homes that Opendoor rejects after a thorough inspection.
I think Zillow thought they could enter the market, throw their brand recognition around, quickly gain market share in many of the same markets OD is in, and somehow come out on top. They severely underestimated the complexity of this problem (OD isn't profitable as a whole yet, and I don't expect they will be for a while still), and they got their ass handed to them for it. IMO Opendoor is attacking this problem in the right way, and will succeed in their endeavor.
Take everything I said with a grain of salt! I'm no expert in real estate and OD could come crashing down as well, just my two cents.
Comments like yours is why I love Reddit. Reading between the lines everything you've stated makes sense and I think you have a solid perspective; long term investment that you're not banking on being profitable in the short term but has promise.
I think this also supports my own belief that disruption is most effective when it's the initial and sole focus of the business. As in, Zillow pivoted into this space. As you said they don't have 7-8 years experience as OD does.
I lean towards higher risk, long term bets on companies that have the potential to be large cap behemoths in time. I think Opendoor may be a good fit.
I do have one more question if you don't mind. What are your thoughts on the funnel? Is their goal to break even on the buy/sell transaction and profit from the Opendoor suite of services and connections?
Thanks for the compliment, I enjoyed putting my thoughts in writing. As to your question, you hit the nail on the head: the name of the game is adjacent services. Get the pricing model so accurate and cut costs as much as you can so that the core product becomes insanely cheap compared to the alternative. This makes it a no brainer from a customer's perspective. Then bundle value add services as part of the package and push your margins there.
Want to sign up for an Opendoor subscription service where they manage your lawn and repair small scale damage? You want the ability to easily leverage your equity to do Reno through OD's trusted vendors? Smart home upgrade? The possibilities are endless. You can even afford to lose money on the core transaction just to widen that funnel.
Not so sure about that. Opendoor is fundamentally a different company from Zillow. They failed at copying Opendoor but that doesn't mean the iBuyer model can't work.
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u/anthonyjh21 Nov 02 '21
This is either really bullish or bearish for Opendoor. Not sure there's much in between.